Understand why the government has difficulties in indicating names to Petrobras

The confusion in Petrobras’ change of command is seen by the market as an indication that the company’s governance rules have worked, ensuring compliance with stricter rules for appointments adopted during the Michel Temer government.

Appointed by President Jair Bolsonaro (PL) to preside over the company and its board of directors, Adriano Pires and Rodolfo Landim declined invitations in recent days, leading the government to start a new round of talks with the market looking for new names.

Pires claimed that he would not have enough time to leave his consultancy, the CBIE (Brazilian Infrastructure Center), which provides services to competitors and customers of the state-owned company. Landim said he needs to dedicate himself to Flamengo, the football club he presides over.

Internal analyzes of the curriculum and background indicated incompatibilities in the indications: in the first case, for the provision of services to companies related to the state-owned company; in the second, for alleging fraudulent management of investments that would have caused losses to pension funds.

Known as the “integrity background check”, the analysis of nominations for Petrobras’ senior management includes not only the candidates’ curriculum, but also investigates whether they are the target of lawsuits, have debts or have acted in political parties, for example.

Based on the Law of State-owned companies sanctioned by Temer, the company’s statute defines a series of restrictions for the appointment of executives from its top management.

They cannot, for example, have legal proceedings against them with an unfavorable decision in the second instance, have commercial or financial pending issues that have been protested or included in official registers, or have suffered labor penalties in the previous three years.

Candidates are given a period to clarify any doubts or demonstrate diligence to respond to any notes on previous activities carried out by internal or external control bodies.

The statute also prohibits the appointment of ministers, holders of commissioned positions in the government, party leaders, people who acted in an electoral campaign, people who did business with the government or with Petrobras itself in the previous three years and who have relatives in these conditions.

The background assessment is carried out, first, with the completion of a form by the candidate and, later, by an investigative work by the company’s governance team. At the end of the work, the result is presented to the board or the council, depending on the position to be held.

In the case of Pires and Landim, this data would also receive an opinion from the People Committee, an independent advisory body for the company’s board of directors. With this opinion, the board would decide whether or not to approve.

The investigative work is extensive and time-consuming — according to sources, it can take up to a month. Thus, the delay in nominations can delay the inauguration of new executives: they would be elected at a shareholders’ meeting and their inauguration would be conditioned to the result of the verification.

These rules were created in an effort to try to shield the state-owned company from political interference, limiting the possibilities of appointments to people with experience in the market and without affiliation to political parties.

They were justified at the time as an attempt to try to prevent the rigging of state-owned companies, pointed out as one of the facilitators of the corruption scheme investigated by Operation Lava Jato.

To fill a vacancy on the company’s board, the statute also determines that the nominees must have at least ten years of “experience in leadership, preferably in the business or in a related area”.

This clause generated divergences in the evaluation of the nomination of General Joaquim Silva e Luna, who was fired by Bolsonaro this month. Councilor Marcelo de Mesquita Siqueira Filho claimed that the nominee did not meet this requirement and tried to veto the appointment.

It was voted out of favor in the People’s Committee, which defended leaving the decision to the shareholders, claiming that it should not analyze “subjective requirements”.

The meeting to elect the new board is scheduled for the 13th and cannot be postponed, as the agenda includes the approval of the company’s accounts in 2021 and executive compensation, among other topics.

The government could, however, withdraw the nominations to the board from the agenda and appoint an interim to the helm of the company until new names are defined.